This is the second in a series related to the Q2 2020 Forisk Research Quarterly (FRQ) which includes forest industry analysis and timber price forecasts for North America.

We entered 2020 expecting to navigate the tradeoffs of a slowing global economy, disruptive trade policies and a surging U.S. housing market. However, through the quarter, as we spoke with industry contacts, the tone started to shift. With market volatility and coronavirus uncertainties, firms started taking a hard look at expectations for the year. The Forisk team did the same.

Timberland Markets

According to Forisk’s Timberland Transaction Database, there were 78 closed deals exceeding 10,000 acres each over the past three years (2017, 2018 and 2019) which summed to nearly 5 million acres. In 2020 YTD, the U.S. industry closed 4 large transactions totaling 877,000 acres (which includes the 630,000 acres Weyerhaeuser sold to Southern Pine Plantations in Montana).

And looking forward? To quote one timber REIT executive, “Investing is on hold. Just look at our stock price.” TIMO executives confirm this story, noting the total lack of new timberland deals on the market and “only deals that were already in the pipeline.” That said, interest remains as timberlands performed well over the course of three recessions prior to this one and, as one consultant noted, clients hope the down market will “reprice the fundamentals” and create investment opportunities in select markets.

Fortunately for many, timber sales and harvesting continue. One operating executive noted that, “with oil prices falling, it’s cheaper to haul logs so it provides a kind of cushion for the supply chain.”

Capital Investments and Capacity

North American forest industry firms have reduced capital investments and curtailed dozens of facilities. Through April 15, public firms alone including West Fraser, Canfor, Interfor, LP, Weyerhaeuser, Boise Cascade and Norbord reduced, in total, planned 2020-2021 cap ex by $470 million (so far).

In addition, as of the first week of April, capacity reductions started reshaping North America’s productive profile. While reductions occurred across regions and sectors, analysis of firm-by-firm and mill-by-mill highlight a continue shift in the balance from Western Canada and neighboring regions to the U.S. South. In addition, the capacity reductions across sectors speak to the relative strength of the pulp and paper sector during this pandemic.

North American Forest Industry Capacity Reductions by Sector, Q1 2020

Further details will be included in Forisk’s upcoming “Timberland 2020” white paper and the Q2 2020 FRQ. Thanks to Forisk Analysts Alec Roach and Tyler Reeves for their ongoing contributions to this research.